Treasury Secretary Says There May Be a Path to Avoiding Recession

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New year, same economic woes?

Key points

• Treasury Secretary Janet Yellen says there is a path out of inflation while still maintaining a strong labor market.
• She also believes 2023 will be a much better year for inflation.

If there’s a big buzz word in the financial world heading into the new year, it’s probably “recession.” Everyone is talking about it — and, in fact, have been for much of the year. But there’s still no real consensus about whether we’re in one, are heading towards one, or will manage to avoid one altogether.

With so many differing opinions, it’s hard to gauge where the economy stands right now. But there’s hope. At least, there is according to Treasury Secretary Janet Yellen. And she should know; Yellen has been one of the leading economists in the U.S. for most of the last 50 years.

According to Yellen, there’s a path through the current economic troubles that avoids the traditional hallmarks of a recession.

“I believe there is a path to bringing inflation down while maintaining a strong, healthy labor market,” she told Stephen Colbert in an interview last week. She went on to explain, “We had rapid recovery. Growth has slowed down, I expect the pace of job creation to slow down — that’s natural and expected when the unemployment rate is close to the lowest in 50 years. So, I think we can take the heat out of the economy.”

The basics of recession

So, what is a recession? Essentially, it’s a prolonged period of depressed economic activity. The economy, like most things, is cyclical, with periods of ups and downs. A recession is a down — a big one. It’s usually accompanied by decreased spending and increased unemployment.

Recessions can last anywhere from a few months, for milder recessions, to a year or more. In severe cases, a bad recession could require several years for the economy to get back to its pre-recession state.

Inflation at the top of our minds

While a looming recession is certainly worth worrying about, it’s not at the top of most consumers’ lists of things keeping them up at night as we head into the new year. No, that honor is reserved for the rampant inflation we’re seeing every time we buy, well, anything.

Luckily, Yellen has high hopes for that, too. In a recent CBS News interview, she said she believes 2023 will be a much better year for inflation — without too many dire consequences for the labor market.

“So I believe inflation will be lower . I am very hopeful that the labor market will — remain quite healthy — so that people can feel good about their finances and their personal economic situation.” She added, “We’re all aware that it’s critically important that inflation be brought under control and not become endemic to our economy. And we’re making sure that that won’t happen.”

Save, grow, repeat

With so much of the economy up in the air, it’s hard to know how to handle your own personal finances. In the end, all we can do is keep on going — and save as much money as we can along the way.

If you can, focus on building an emergency fund (or replenishing it). Once that’s in good shape, turn your attention to your other savings accounts. And don’t forget about your retirement savings; economic cycles come and go, but you’re going to need that retirement money come boom or bust.